In 1902, the artist-craftsman CR Ashbee led the Guild of Handicraft out of the slums of London's East End, resettling 150 men, women and children in the then remote small town of Chipping Camden in the Cotswolds. The aim was the creation of beautiful things in beautiful surroundings. The cockneys were inspired by ideas of repossession of their rightful rural homeland. This experiment in living lasted only five years, ending in economic crisis. Heroic, picturesque and finally impractical, the episode sums up the high romanticism of the English Arts and Crafts.

The Arts and Crafts was a protest movement, galvanising artists, architects and tradesmen from the 1880s onwards. In the words of William Morris, its most militant protagonist, this was a battle "against the age". Arts and Crafts was against ruthless commercial expansion, the cynical proliferation of the useless, the squalor and pollution carelessly created by industrial production, against monotony and deadening of the human spirit. At a time of increasing anxiety about the social effects of globalisation, echoes of the Arts and Crafts movement are still with us. It was one of the most fascinating cultural phenomenons of the late 19th century and early 20th century, and its influence spread wide.

John Ruskin's writings were the much-quoted source books of the movement. Ruskin, who found new moral meanings in the built environment, evolved visions of a new form of society in which conventional divisions between gentlemen and labourers were ended. In democratic communities of the Arts and Crafts, gentlemen could discover the sensory joys of creating things by hand while artisans would be allowed the new luxury of thinking, given entrée to the stimulating workshops of the mind in which Ruskin's Stones of Venice was obligatory reading. For idealistic young artists, Ruskin pointed the way to a new life in a new land.

The sweet-natured, volatile William Morris took Ruskin's ideals of handmaking to almost unimaginable lengths. Morris rising at dawn in Hammersmith to weave on the tapestry loom in his bedroom in the early morning light. Morris throwing off his coat to make a sheet of paper from purest rag linen at Bachelor's works at Little Chart in Kent. Morris seated next to Madame Richard Wagner at a London dinner party, his hands stained indelibly blue from the dye vats in which he had been experimenting with indigo. These are potent images. His unembarrassed passion for the tactile makes him a prime example of the social reorientation that was at the heart of Arts and Crafts.

The goatee-bearded guru of the movement was Edward Carpenter, England's answer to Walt Whitman. Carpenter was the author of an undeservedly forgotten long tone-poem, Towards Democracy , a hymn to the unrecognised spiritual potential and physical splendour of the British working man. The intensively egalitarian Carpenter, a former clergyman, prophetic homosexual and sandal-maker extraordinaire, formed an agricultural community at Millthorpe in Derbyshire, a place of pilgrimage and source of inspiration for Edwardian simple lifers, intellectuals and writers, DH Lawrence and EM Forster among them. Ashbee's Guild of Handicraft had been founded on Carpentarian principles of "comradeship", a mystic condition in which the sexual urges were transformed into the purer camaraderie of an ever-growing network of self-sufficient smallholdings and workshops. The Arts and Crafts movement had its wilder shores.

It was a sexually fluid ambience in which the craftswomen could flourish. If, in the past, the male stars of Arts and Crafts - Ashbee, Voysey, Baillie Scott, Charles Rennie Mackintosh - have been in the ascendant, it is now becoming recognised that some of the most original and marvellous craftworks of the period were made by artistically pioneering women. Georgie Gaskin's jewellery, Katherine Adams' bookbinding, Wilhel-mina Geddes's stained glass, Margaret Mackintosh Mac- donald's textiles, the glowing enamelled metalwork and murals of brilliantly versatile Edinburgh-based designer Phoebe Traquair. If I had to choose just one work to epitomise the movement, it would be Traquair's esoteric series of embroidered linen panels The Progress of a Soul.

The Arts and Crafts offered a conscious contrast to the humdrum predictability of factory-made products. The new designer-makers satisfied the yearning for the individual and special with their perfectionism of technique: carving and gilding, tempera and marquetry, flambé and lustre glazing, appliquéing and burnishing, braiding, beading, smocking. There was fascination with texture, reflecting the unpredictable social mix within the workshops. Plain linen was embroidered with silks and gold thread; copper was combined with ebony and polished iron. Another quintessential object of the period is Ashbee's green glass decanter with flowing silver mount and knob surrounded by a chrysoprase. The Arts and Crafts established new hierarchies of value in which precious metals and semi-precious stones could co-exist.

Instead of jettisoning the past, the Arts and Crafts drew on what was seen as still valid for the present. This highly selective view of history romanticised the middle ages into grand old days of moral integrity and creative vigour in which artefacts were made for common use and not for profit. In Edward VII's England, quasi-medieval guilds of craftsmen were established, the most extreme example being Eric Gill's Roman Catholic community at Ditchling, Sussex, the Guild of Saint Joseph and Saint Dominic. Here, Gill returned to the "normal life" of his ancestors, hand-making, bread-baking, butchering the home-reared pig, in defiance of what he termed "the blasphemy of Bird's Custard Powder", the crass adulterations of contemporary life.

Loving cups and chargers; banners, buckles, sword sheaths; altar cloths and arum lilies - all these contributed to the visual language of the Arts and Crafts, the medievalising tendency satirised by Gilbert and Sullivan in Patience . For women, Arts and Crafts garments tended to be free-flowing, like those of the maidens in a Burne-Jones tapestry. Embarking on her highly unconventional marriage, the first time she went swimming with her husband, Janet Ashbee left her stays behind her on the seashore. Edward Carpenter's sandals were equally symbolic, liberating the feet from the "coffins" of shoes.

The Arts and Crafts had its roots in a deep feeling for the countryside. Unlike the "picturesque", in which the vision was imposed, the Arts and Crafts sought to rediscover the intrinsic. Many practitioners settled in the country, recording the recherché delights of rural vernacular building, investigating and reviving traditional crafts. With its connections to the back-to-land movement and the early 20th-century English folk song revival, much of the exhilaration of the Arts and Crafts sprang from its re-connections with particular localities. The Cotswolds, Haslemere, the Lake District and Cornwall were all centres of a movement that believed in the regenerative power of natural materials and motifs drawn from the countryside. A visiting architect described the Cotswold colony of the furniture-makers Ernest Gimson and Sydney and Ernest Barnsley as "a sort of vision of the NEW Jerusalem".

More surprisingly, the movement also flourished in the cities with important groups in Birmingham, Sheffield, Manchester and Glasgow. Most of all, it was a movement based in London, as Alan Crawford points out in the catalogue for the large-scale Arts and Crafts exhibition opening this month at the V&A. With its network of craft societies and selling exhibitions, London was the energising centre. The products of small workshops were on sale at craft-oriented stores such as Liberty's and Heal's. The most luxurious of Arts and Crafts objects - silver, jewellery, elaborately hand-crafted women's gowns - have a sophistication that is essentially urban. Arts and Crafts was largely supported by the metropolitan culture it purported to despise.

It became a considerable movement: 130 separate Arts and Crafts organisations have been identified in Britain alone, the majority formed in the creatively radical decade between 1895 and 1905. Arts and Crafts overflowed into architecture, garden design and civic planning with the invention of the Garden City. Its ideas permeated the new education movement, the carpentry classes and potato-hoeing sessions endured by Lytton Strachey at Abbotsholme. In its demands not just for better working conditions but for more workers' control over the products of their labours, the Arts and Crafts and the beginnings of the British Labour movement are inextricably intertwined.

The movement burgeoned overseas, especially in America. What was Thoreau's hut at Walden if not a prototype Arts and Crafts dwelling? By the turn of the century, hundreds of craft communities and workshops had been founded in the US - in Boston, New York, Chicago and California, where the movement reached its high peak of finesse with Greene and Greene's Gamble House in Pasadena. In this masterwork of timber construction, the brother architects Charles Sumner and Henry Mather Greene designed not only the building but the furniture and textiles, stained glass, metalwork and light fittings, achieving the total visual coherence to which the Arts and Crafts movement aspired.

All over Europe, you come upon remains of Arts and Crafts encampments, poignant monuments to the ideals inspired by Morris as they spread through the Netherlands, Germany, Austria and Scandinavia. The Artists' Colony at Darmstadt still stands, its hipped-roof houses clustered around Josef Maria Olbrich's fantastical Secessionist building with its golden-tipped Wedding Tower. I remember my first astonished sight of Hvitträsk, a red-tiled Arts and Crafts castle rising high in the pinewoods above the Gulf of Finland, where the Finnish architects Herman Gesellius, Armas Lindgren and Eliel Saarinen lived, worked, feuded and coveted one another's wives. In this building, a Nordic version of William Morris's Red House, the sequence of wonderfully decorated rooms unfolds like an episode of one of Morris's own magical romances.

A rediscovered Arts and Crafts monument, the Mikuniso guest house from Osaka, will be partially reconstructed for the exhibition, a fascinating and also sinister reminder that western-inspired Arts and Crafts continued to flourish in Japan through the second world war, subverted to the cause of Japanese imperialist aggression. The sheer goodness of the movement, bound as it is to folk art and the quest for national authenticity, made it vulnerable to nationalistic exploitation.

Fervently political and profoundly paradoxical, the Arts and Crafts still has extraordinary resonance. The V&A exhibition follows two earlier spectaculars, Art Nouveau and Art Deco, with the important difference that Arts and Crafts was not a style but an ideology. The show promises to be not just visually marvellous but philosophically rich and ethically timely, as alternative values come to the fore once more. The visual language of Arts and Crafts springs from shared beliefs in a better, softer and more lovely way of living. The imagery is of growth, regeneration and contrition.

· International Arts and Crafts is at the V&A, London SW7, from March 17 until July 24. Details: 020-7942 2496, www.vam.ac.uk. Fiona MacCarthy is the author of William Morris: A Life for Our Time (Faber & Faber).